Lithium Australia PFS Vindicates High-Value Potential of LFP Battery
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14 April 2021 Lithium Australia PFS vindicates high-value potential of LFP battery materials HIGHLIGHTS Superior performance of VSPC lithium ferro phosphate ('LFP') product demonstrated. Positive pre-feasibility study ('PFS') confirms veracity of independent LFP cathode powder production chain. US$253 million net present value ('NPV') and internal rate of return ('IRR') of 33% for 13 years of LFP production. LFP attributes driving demand and market growth include: o superior safety o low-cost o no conflict metals required. Lithium Australia has committed to a definitive feasibility study. Comment from Lithium Australia MD, Adrian Griffin “Lithium Australia’s subsidiary VSPC Ltd ('VSPC') has demonstrated its capacity to produce some of the most advanced LFP cathode powders available and also higher energy density variants such as lithium manganese ferro phosphate (‘LMFP’). VSPC has completed a PFS that clearly demonstrates the value of establishing an alternative cathode powder supply chain using VSPC’s proprietary technology. "These major milestones have been achieved in an environment in which the largest electric vehicle ('EV') producers are moving to incorporate LFP lithium-ion ('Li-ion') batteries into entry-level vehicles, due to their superior safety, lower cost, longer life and reduced exposure to conflict metals. These LFP attributes are also expanding its utilisation in stationary energy-storage applications. Indeed, major battery producers worldwide are racing to expand their LFP production to meet demand as LFP becomes the fastest growing sector of the battery industry. "At present there is little LFP production outside of China, with original equipment manufacturers striving to secure alternative supply chains. Lithium Australia and VSPC aim to provide that supply chain security.” VSPC, which has 17 years’ experience in the production of nano powders, operates a pilot facility in Brisbane, Australia, where it produces advanced LFP and LMFP cathode powders. ASX ANNOUNCEMENT Batteries Page 1 Introduction VSPC is a wholly owned subsidiary of Lithium Australia NL (ASX: LIT, ‘the Company’). At its R&D facility in Brisbane, Australia, VSPC is developing LFP-based cathode powders and derivatives, as well as LMFP cathode powders. VSPC's LFP is superior in quality and performance to most of the other LFP cathode powders currently available, and it has now completed a PFS for the proposed production of that LFP cathode powder. The PFS considered three jurisdictions for that production: Australia, Vietnam, and India. Robust project economics The PFS has confirmed robust project economics for the manufacture of VSPC's LFP cathode powder, with production to ramp up to a capacity of 10,000 tonnes per annum ('tpa') over a three-year period, reaching nameplate capacity in 2026. The case for locating the plant in India is revealed as the best financial outcome with a net present value ('NPV') of US$253 million and an internal rate of return ('IRR') of 33%. The PFS is based on proprietary VSPC process technology that provides competitive, if not superior, performance when compared with other processes for the manufacture of advanced LFP materials, notably the more expensive sol-gel processes used in China and Vietnam. While the PFS has provided a detailed evaluation of the three possible jurisdictions, further factors – such as strategic partnerships with upstream mining, refining and chemical producers – may provide further benefits for the commercialisation of VSPC cathode powders. Similarly, downstream partnerships (cathode and battery manufacturing) may provide additional financial benefits in other jurisdictions, and to that end the Company is evaluating specific opportunities in Australia, South Korea, Europe and the United States. PFS base case The PFS includes a base case for location of the plant in southern India, with a discount rate of 8%. Major indicators include: an LFP production rate of 10,000 tpa; an NPV of US$253 million (13 years' operation); an IRR of 33%; a payback period of five years; annual LFP sales revenue of US$140 million; EBITDA (earnings before interest, taxes, depreciation and amortisation) of US$66 million per annum; a free cash flow of US$56 million per annum, and plant investment of US$113 million in two stages over three years. Further particulars of the PFS considerations are provided in Appendix I – Executive Summary. ASX ANNOUNCEMENT Batteries Page 2 LFP market outlook strong Over the past 12 months, global demand for LFP has increased by more than 25%, bringing Chinese LFP cathode powder manufacturing up to over 100,000 tpa. Only 2% of the global LFP cathode powder production originates from outside China. With many major EV producers already manufacturing LFP-powered vehicles within China, and making these available in other jurisdictions, North America and Europe are likely to be areas of high demand. Added to this mix is the recent announcement by the Volkswagen Group ('VW') that its entry-level EVs will be powered by LFP. Major EV manufacturer, BYD has announced it will discontinue the production of batteries containing nickel and cobalt, directing all of its production capacity to LFP. The use of LFP in battery energy-storage systems (BESS) and marine application will further increase demand. This creates a great opportunity to supply into a market with little competition. Global trends in LFP production are expected to follow what is occurring in China, where rising LFP demand, as forecast by Roskill (below), are likely to see it become the dominant Li-ion chemistry in the next few years, due to its greater safety characteristics, environmental, social and governance (ESG) values and more positive cost structure. LCE = lithium carbonate equivalent LP = lithium phosphate Sources: Roskill, June 2020. The resurgence of LFP cathodes (White paper); ITRI, November 2020. LFP Market report. ASX ANNOUNCEMENT Batteries Page 3 Next steps These include: completing a business case review for the preferred Indian option; engaging an engineering firm for the definitive feasibility phase, confirmation of project location, as well as site selection, and conduct a Life Cycle Assessment analysis of the project to determine sustainability factors and identify opportunities to reduce carbon footprint and other sustainability initiatives. Lithium Australia will continue to evaluate opportunities for downstream partnerships, particularly in jurisdictions where demand for LFP consumption is likely to increase rapidly; in, for example, Europe and North America. Authorised for release by the Board. Adrian Griffin Barry Woodhouse Managing Director CFO and Company Secretary Mobile +61 (0) 418 927 658 Mobile +61 (0) 438 674 259 [email protected] [email protected] About Lithium Australia Lithium Australia aims to ensure an ethical and sustainable supply of energy metals to the battery industry by creating a circular battery economy and enhancing energy security in the process. Recycling spent Li-ion batteries to create new ones is intrinsic to this plan. The Company is rationalising its portfolio of lithium projects/alliances while furthering its research into, and development of, proprietary extraction processes for the conversion of all lithium silicates (including mine waste), and of unused fines from spodumene processing, to lithium chemicals. Lithium Australia will use those chemicals to produce advanced components for the battery industry globally and for stationary energy-storage systems within Australia. By uniting resources and innovation, the Company is working to vertically integrate lithium extraction, processing and recycling to create a more sustainable battery industry. About VSPC VSPC is a wholly owned subsidiary of Lithium Australia. It operates a battery material R&D facility and pilot plant in Brisbane, Queensland, Australia, where it has developed advanced processes for the manufacture of cathode powders applicable to all Li-ion battery chemistries, as well as anode materials like lithium titanate ('LTO'). VSPC’s simple, scaleable processes for the production of nano-structured battery cathode powders allow precise control of chemical composition, particle size and surface characteristics; moreover, they are flexible and cost-competitive (given their ability to use low-cost raw materials and recycled lithium as feed) and readily adaptable to a range of nanostructured materials. Currently, VSPC is commercialising its process technology for the manufacture of cathode material for LFP- and LMFP-type Li-ion batteries. ASX ANNOUNCEMENT Batteries Page 4 Forward-looking statements This document contains forward-looking statements. Forward-looking statements are necessarily based on a number of estimates and assumptions that, while considered reasonable by the Company, are inherently subject to significant technical, business, economic, competitive, political and social uncertainties and contingencies, involve known and unknown risks and uncertainties that could cause actual events or results to differ materially from estimated or anticipated events or results reflected in such forward- looking statements, and may include, among other things, statements regarding targets, estimates and assumptions in respect of commodity prices, operating costs and results, capital expenditures, ore reserves and mineral resources and anticipated grades and recovery rates and are, or may be, based on assumptions and estimates related to future technical, economic, market,